Is FirstEnergy (FE) Stock A Buy or Sell?

In this article you are going to find out whether hedge funds think FirstEnergy Corp. (NYSE:FE) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Is FE stock a buy or sell? FirstEnergy Corp. (NYSE:FE) was in 50 hedge funds’ portfolios at the end of December. The all time high for this statistic is 59. FE shareholders have witnessed a decrease in activity from the world’s largest hedge funds recently. There were 59 hedge funds in our database with FE holdings at the end of September. Our calculations also showed that FE isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017 (see the details here).

John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. Recently Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. We go through lists like the 10 best biotech stocks to invest in to pick the next stock that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage (or at the end of this article).Keeping this in mind let’s go over the latest hedge fund action encompassing FirstEnergy Corp. (NYSE:FE).

Do Hedge Funds Think FE Is A Good Stock To Buy Now?

At the end of the fourth quarter, a total of 50 of the hedge funds tracked by Insider Monkey were long this stock, a change of -15% from the previous quarter. On the other hand, there were a total of 40 hedge funds with a bullish position in FE a year ago. With hedge funds’ capital changing hands, there exists a select group of key hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

The largest stake in FirstEnergy Corp. (NYSE:FE) was held by Two Sigma Advisors, which reported holding $144.2 million worth of stock at the end of December. It was followed by D E Shaw with a $136.5 million position. Other investors bullish on the company included First Pacific Advisors LLC, Empyrean Capital Partners, and 683 Capital Partners. In terms of the portfolio weights assigned to each position Madison Avenue Partners allocated the biggest weight to FirstEnergy Corp. (NYSE:FE), around 13.83% of its 13F portfolio. Silver Point Capital is also relatively very bullish on the stock, earmarking 6.13 percent of its 13F equity portfolio to FE.

Because FirstEnergy Corp. (NYSE:FE) has witnessed declining sentiment from hedge fund managers, we can see that there was a specific group of fund managers who sold off their full holdings heading into Q1. It’s worth mentioning that Jos Shaver’s Electron Capital Partners dumped the biggest stake of the 750 funds followed by Insider Monkey, comprising an estimated $76.4 million in stock, and Zilvinas Mecelis’s Covalis Capital was right behind this move, as the fund dumped about $17.1 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 9 funds heading into Q1.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as FirstEnergy Corp. (NYSE:FE) but similarly valued. We will take a look at Monolithic Power Systems, Inc. (NASDAQ:MPWR), The Liberty SiriusXM Group (NASDAQ:LSXMA), Carnival Corporation & plc (NYSE:CUK), Logitech International SA (NASDAQ:LOGI), Tractor Supply Company (NASDAQ:TSCO), Sun Communities Inc (NYSE:SUI), and Solaredge Technologies Inc (NASDAQ:SEDG). This group of stocks’ market valuations resemble FE’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MPWR 30 640635 -7
LSXMA 42 1691626 0
CUK 7 116507 -6
LOGI 21 432791 6
TSCO 39 1179291 -9
SUI 27 600763 -4
SEDG 28 458949 -3
Average 27.7 731509 -3.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.7 hedge funds with bullish positions and the average amount invested in these stocks was $732 million. That figure was $1305 million in FE’s case. The Liberty SiriusXM Group (NASDAQ:LSXMA) is the most popular stock in this table. On the other hand Carnival Corporation & plc (NYSE:CUK) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks FirstEnergy Corp. (NYSE:FE) is more popular among hedge funds. Our overall hedge fund sentiment score for FE is 71.4. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks returned 5.3% in 2021 through March 19th but still managed to beat the market by 0.8 percentage points. Hedge funds were also right about betting on FE as the stock returned 15.3% since the end of December (through 3/19) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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Disclosure: None. This article was originally published at Insider Monkey.